Trading with the Enemy? - P.J. O'Rourke

May 21, 2006

Here are some of my favourite snippets from a brilliant article by P.J. O'Rourke. In this article he is addressing the so-called trade deficit that the USA has with China:

Economic progress requires division of labor, freedom of trade, and pursuit of self-interest.


Trapped in the theater of Maoism, the Chinese finally noticed the emergency exit marked "Adam Smith." China's economy barged though Deng Xiaoping's Open Door. The door smacked American policymakers in the head and they've been wandering around in a daze mumbling nonsense about the unfairness of our trade deficit with China ever since.

But there is no such thing as a trade imbalance. Trade can't be out of balance because a balance is what a trade is. Buyers and sellers decide that one thing is equivalent to another. Free trade is balanced trade. You might as well have free love then claim your partner had sex but you didn't. And a certain American president did claim that. Maybe Monica Lewinsky is in charge of America's China policy.

There is no such thing as a trade deficit. It doesn't matter if America imports all of its goods from China and exports nothing but pieces of paper. The Americans want the computer monitor, and the Chinese want handsome portraits of Benjamin Franklin. No coercion is involved. Nobody is making Americans buy Chinese goods. It's not like the Opium Wars when the British forced the Chinese to accept shipments of, shall we say, pharmaceutical imports. Maybe the Chinese will fight a war with America--the Consumer Electronics War of 2007, with Chinese gunboats cruising the fountains in America's malls. But it hasn't happened yet.

Instead of the luxuries of life, the Chinese import money. There's no such thing as a trade deficit, but there is such a thing as a current account deficit. China holds an enormous amount of U.S. currency. This worries America's policymakers, although I'll be damned if I know why.

A U.S. dollar is an IOU from the Federal Reserve Bank. It's a promissory note that doesn't actually promise anything. It's not backed by gold or silver. If Hu Jintao brought a $100 bill with him to Washington, and if he took the $100 bill over to the Federal Reserve, what he got for it was a hundred dollars. He may have gotten it in twenties, tens, or dimes. But all the Fed will give anyone for their American money is other American money. Hu Jintao is stuck with his IOU.

When America's policymakers are acting really ignorant and stupid about economic principles, the calculated ignorance and stupidity of politics is usually involved. Chinese economic development has cost many American workers their jobs. That's the price of progress. The invention of fire cost many Cro-Magnon workers their jobs--all those people you paid to sit on you to keep you warm. No American policymaker--whether elected, appointed, or sitting on the New York Times editorial board--is likely to go on Hardball and tell the voters that when they lose their job because somebody in Wuxi is willing to do what they're doing for $145 a month, then what they're doing isn't valuable.

When what you're doing isn't valuable you have two options: You can try to do something that is valuable. Or you can try to make everyone else in the world do something that's worthless. You can be Chinese, or you can be French. You can build cars, or you can burn them. We don't want the Chinese doing worthless things like coming across the Yalu in hordes the way they did during the Korean War or crossing the Formosa Straits to belatedly settle Chiang Kai-shek's hash. Let's keep them busy making money.

You can read the whole article here:


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